Moody's ups Alpharma outlook

Moody's Investors Service confirmed the ratings (senior implied at B2) of Alpharma Operating Corp. and raised the outlook for the ratings to stable from negative.

The changed outlook reflects declining financial leverage, expectations for more improvements in operating results in 2003 and continued progress in resolving FDA issues, Moody's said.

Financial leverage declined from total debt to EBITDA of about 5.1x in mid-2002 to 3.8x at yearend 2002.

The ratings also consider that the SEC had commenced a formal investigation in June 2002 of the circumstances surrounding Alpharma Inc.'s 2000 and 2001 restatements of its financial statements.

The ratings and rating outlook are restrained by Alpharma's need to demonstrate a track record of sustainable improvements in operating earnings, limit future debt-financed acquisitions and resolve the pending FDA issues and the SEC investigation.

Fitch rates new J.C. Penney notes BB

Fitch Ratings assigned a BB rating to J.C. Penney Co. Inc.'s new $600 million of 8% senior notes due 2010. The outlook is stable.

Liquidity remains strong, with $2.5 billion of cash on hand at the end of 2002.

With proceeds of the new issue, this is more than enough to cover upcoming debt maturities of $1.2 billion over the next three years and seasonal borrowing needs, plus cover projected negative free cash flow of $250 million in 2003.

Credit protection measures have shown gradual improvement from a low point in 2000. EBITDAR/interest plus rents increased to 1.8x in the 12 months ended Oct. 26, from 1.7x in 2001 and 1.2x in 2000, while adjusted debt/EBITDAR improved to 5.1x from 5.8x in 2001 and 7.8x in 2000.

While these levels are weak for the rating category, Fitch expects them to strengthen over the medium term as profitability and cash flow improves.

S&P upgrades Charles River

Standard & Poor's upgraded Charles River Laboratories International Inc. and its subsidiary Charles River Laboratories Inc. including raising Charles River Laboratories International's $185 million 3.5% senior convertible debentures due 2022 to BB from B+. The outlook is stable.

S&P said the upgrade reflects Charles River's favorable operating performance as a leader in the animal models business, demonstrated discipline in building its drug development services business, and the maintenance of sound financial policies, offset by its still-narrow business profile.

Charles River is expanding its biomedical products and services business, which provide various contract research services; analytical, biosafety, and endotoxin testing; and production services, S&P noted. The services business now accounts for 59% of the company's revenues, an increase from 41% in 2000. Although services generate lower operating margins than the animal models business (18% compared to 27%), it diversifies the company's offerings and enables the company to leverage its existing relationships with customers.

Charles River should continue to benefit from the increased R&D activity at the pharmaceutical and biotech companies that are its main customers, S&P added. It is expected that the number of drug targets entering development will sharply increase over the next few years, aided by recent advances in genomics.

The company's financial performance remains strong. EBITDA operating margins are a robust 29%, and return on capital was a healthy 23%, S&P said. Funds flow from operations to total debt amount to roughly 60%.

Moody's upgrades Chesapeake, rates notes Ba3, converts B3

Moody's Investors Service assigned a Ba3 rating to Chesapeake Energy Corp.'s proposed $300 million of senior unsecured notes due 2013 and a B3 rating to its $200 million offering of perpetual mandatory convertible preferred stock and upgraded its existing ratings including its senior unsecured notes to Ba3 from B1 and convertible preferreds to B3 from Caa1. The outlook is stable.

The upgrades reflect sustained improvement over the years in the quality of Chesapeake's reserve base as it produced-off shorter-lived reserves, and divested reserves in other regions, and reinvested proceeds from asset sales, cash flow, and external capital in its core mid-continent region at satisfactory finding and development costs, Moody's said.

Coupled with a resulting rising reserve life on proven developed reserves, satisfactory execution in the field, fortuitously strong prices and inspired hedging, and the recently adequate use of perpetual non-callable preferred stock and common equity as a funding source, the firm's operating and financial profiles and demonstrated acquisition and funding strategies warrant the Ba3 rating, Moody's added.

Furthermore, while Chesapeake's frequent acquisitions during a high price environment could run the inherent risk of stretching its due diligence capabilities and/or of simply overpaying for reserves, the company has been acquiring in regions it knows well, it has been able to hedge away much of its first year or two of price risk, and raised sufficient perpetual preferred and common stock to shift adequate acquisition risk to capital layers junior to the senior notes.

However, the ratings are restrained principally by high leverage on proven developed reserves, especially in light of ongoing aggressive acquisition risk and inherent sector reinvestment and price risks, Moody's said.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.